$400 billion raised in 2017 shatters Bay Street financing record

$400 billion raised in 2017 shatters Bay Street financing record

A robust economic outlook and investors' thirst for yield lifted debt and equity capital financing to levels not seen before, with deals running the gamut of Canadian corporate life. From offerings including in cannabis, cryptocurrency and the fintech space, Dealmakers data ranks the players that put them together

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$400 billion raised in 2017 shatters Bay Street financing record

Canadian corporate dealmaking stood at its highest level in 2017 amid a robust economic outlook and investors’ thirst for yield. New corporate issuances last year were driven by “a positive market backdrop characterized by historically low funding costs with notable activity in the Maple (domestic borrowings by foreign issuers) market, a rebound in high yield supply and increased non-financial issuance,” according to Rob Brown, co-head of debt capital markets at RBC Capital Markets.

All in, raising debt and equity capital was a $400 billion business last year — levels not seen before on Bay Street, and equal to around 20 per cent of the country’s economy. In 2016, the country’s financial institutions had helped raise just under $389 billion, itself a record.

“Generally speaking, the market for new issues was relatively robust all across the board — both debt and equity. I think the companies that might have faced challenges in terms of raising capital would have been primarily in the resource based sector,” said Roman Dubczak, head of global investment banking at CIBC Capital Markets. “The price of oil was depressed for most of 2017 so that sector did not raise as much capital as it traditionally does. Likewise, mining was not as robust as in prior periods. That said, we are seeing a strong recovery in the commodity prices all across the spectrum.”

The financings ran the gamut of Canadian corporate life: From Canada Housing Trust, which issued $50 billion in mortgage bonds backed by a federal government guarantee, to small but exotic offerings in marijuana, cryptocurrency and fintech space.

Between those two extremes were the borrowers and issuers seeking various forms of equity and debt, a good chunk of which, at least for the corporate sector, was related to an acquisition.

But it was debt deals that led the way, accounting for more than $350 billion in 2017, of which corporations were responsible for almost $200 billion, while governments raised over $150 billion.

The rest of what was raised, almost $48 billion, was to meet the equity needs of corporations, be it in the form of common equity, trust units, convertible debentures, or preferred share or structured products.

Combining debt and equity offerings, RBC Capital Markets emerged as the leading dealmaker, according to the methodology used by the Financial Post, helping raise about $60.15 billion – about 15 per cent of total issuance, reflecting RBC’s role as either sole or joint book runner on all financings.

TD Securities was in second place, with $53.59 billion of such transactions, leaving the top two positions unchanged since 2016.

BMO Capital Markets stood in third place last year — as it did in 2016 — with $40.70 billion. CIBC World Markets Inc. improved its sixth-place ranking in 2016, with deals valued at $38.25 billion that pushed it to fourth place in 2017. National Bank Financial Inc. dropped to fifth with $35 billion and Scotia Capital Inc. slipped from fifth to sixth place in 2017, with $28.56 billion.

The four foreign firms — Bank of America Merrill Lynch, HSBC Securities (Canada) Inc., J.P Morgan Securities LLC and Citigroup Global Markets Inc. – completed the top ten ranking, in that order. Foreign firms also filled the spots from number 11 to 19, in large part as they tend to be in the syndicate for the large multi-billion debt financings by Canadian issuers.

A benign interest rate environment meant that Canadian corporates did not hesitate to tap international markets for large sums last year. Valeant Pharmaceuticals Intl Inc., Canadian Natural Resources Ltd., Cenovus Energy Inc., Alimentation Couche-Tard Inc., Royal Bank of Canada and Bank of Montreal, all completed financings of more than $3 billion each, while First Quantum, Nova Chemicals, Royal and BMO also did major financings of more than $2.5 billion.

The Financial Post Data tables show that corporations raised $132.1 billion outside of Canada in 2017 – or more than half of what was raised in total. And the debt deals were huge, with 10 above $4 billion.

“When clients come to us looking for solutions, we try to optimize the solution, and that solution lies sometimes in Canada, and sometimes it lies in the United States,” said Ashi Mathur, managing director and deputy head of investment banking BMO Capital Markets. “In 2017, we worked with Great West Life, a Canadian company, but they decided it was best for them to seek debt financing in the United States. On the flip side we had Apple, who decided to do a Maple bond issue in Canada, and that transaction raised over $2.5 billion.”

Overall, RBC was the leading underwriter for corporate debt, while TD ranked second. Not to be outdone, TD ended up just ahead of RBC in government debt.

Ashi Mathur is managing director and deputy head of investment banking at BMO Capital Markets.

RBC’s Brown says his firm was focused on delivering “tailored advice and execution to our clients, combined with our uniquely global reach, proven execution capabilities, innovative mindset and leading secondary trading support contributed to our continued leadership position in 2017.”

Equity issuance was also noteworthy for large financings: Cenovus Energy, which acquired ConocoPhillips’ oilsands assets for $17.7 billon, raised $3 billion in a bought deal. Hydro One raised $2.79 billion in a secondary equity offering, and another $1.54 billion via an offering of convertible debentures to help finance the acquisition of Avista Corp.

It was also a strong year for initial public offerings on the Toronto Stock Exchange. Oil and gas may be anathema to investors over the past few years, but Kinder Morgan Canada Inc. bucked the trend. The Houston-based energy infrastructure company raised $1.75 billion for its Canadian unit in what ended up being the largest IPO on the TSX in 2017.

There were a string of other IPOs that kept investors coming back to the market. Canada Goose Holdings Inc. raised $391 million to take advantage of customers’ love of pricey parkas. Jamieson Wellness Inc., the health and wellness company, was a surprise IPO hit, raising $300 million, while Roots Corp., the venerable Canadian retailer, raised $200 million.

Altogether, first-time issuers raised $6 billion in 2017, breathing new life in the Canadian equity space that was tiring of the old mining and energy names.

The ranking for all equity issues, which includes common, preferred and structured products, saw RBC and TD’s stranglehold on the top spots loosening, when using the Financial Post Data metrics that give full credit to bookrunners. CIBC World Markets topped that list with $1.72 billion in issuance, with BMO Capital Markets, placed second with $1.34 billion of preferred share issues, comfortably ahead of third placed TD, which had $1.08 billion.

Independent firms also enjoyed a busy year. Canaccord Genuity Corp. which was involved in 96 financings and helped raise $1.79 billion in equity, and GMP Securities LP, with 36 deals across just over a $1 billion, cracked the top 10 in equity issuances.

The Financial Post Data tables also detail the aggregate underwriting liability assumed by each dealer for equity issues. On that measure, BMO Capital Markets was a member of 178 syndicates for a total liability of $5.65 billion – about $600 million behind leader RBC.

Among 2017 IPOs, Canada Goose Holdings Inc. raised $391 million to take advantage of customers love of pricey parkas.

For government debt, National Bank Financial was involved in 68 deals that raised $26.81 billion, but was pushed in second place by TD, which raised $26.87 billion in 63 deals. In all, the provinces raised almost $30 billion of debt outside of Canada – almost 35 per cent of their borrowings, an all-time high according to RBC’s Brown.

In 2018, the global economic expansion is set to boost dealmaking as companies are able to be ambitious with their growth plans and acquisitions, says BMO’s Dubczak.

“The global economic expansion is driven by several exogenous factors – expansion in commodity prices is based on expansion in economic growth,” Dubczak said. “The U.S. tax reform package that is working it ways through Congress currently should be stimulative in terms of the amount of liquidity it backs in the system. So those are the two primary catalysts that will be driving growth and financing in the North American markets in 2018.”